Mayotte v. U.S. Bank

985 F.3d 1248

• Court: Court of Appeals for the Tenth Circuit
• Decided: January 22, 2021
• Docket: 20-1027
• Status: Published

Opinion

FILED United States Court of Appeals PUBLISH Tenth Circuit

UNITED STATES COURT OF APPEALS January 22, 2021 Christopher M. Wolpert FOR THE TENTH CIRCUIT Clerk of Court _______________________________________

MARY M. MAYOTTE,

Plaintiff - Appellant,

v. No. 20-1027

U.S. BANK NATIONAL ASSOCIATION, as Trustee for Structured Asset Investment Loan Trust Mortgage Pass–Through Certificates, Series 2006-4; and WELLS FARGO BANK, N.A.,

Defendants - Appellees. _________________________________

Appeal from the United States District Court for the District of Colorado (D.C. No. 1:14-CV-03092-RBJ) _________________________________

Brad Kloewer, Cain & Skarnulis, Salida, Colorado, on behalf of the Plaintiff-Appellant.

Andrew M. Jacobs, Snell & Wilmer, Phoenix, Arizona (Anna M. Adams, Snell & Wilmer, Denver, Colorado, with him on the briefs), on behalf of the Defendants-Appellees. _________________________________

Before HOLMES, BACHARACH, and EID, Circuit Judges. _________________________________

BACHARACH, Circuit Judge. _________________________________ This appeal grows out of the interplay between remedies for tort and

breach of contract. Remedies are often broader for tort than for breach of

contract, and claimants often seek the broader tort remedies for conduct

considered wrongful only because it violates a contractual duty. To enforce

the limits on contractual remedies, courts employ a doctrine known as the

“economic-loss rule.” See Restatement (Third) of Torts: Liability for

Economic Harm § 3 (Am. L. Inst. 2020). Under this rule, tort remedies are

ordinarily unavailable for economic losses resulting from violation of

contractual duties in the absence of an independent duty growing out of a

special relationship between the parties. Id. & cmt.g.

The overarching issue here is whether the economic-loss rule

prevents use of tort remedies for a lender’s failure to carry out its

promises. The district court answered “yes,” rejecting the plaintiff’s effort

to recover tort remedies for wrongful conduct consisting solely of alleged

contractual breaches. We agree with the district court.

1. Ms. Mary Mayotte sues for torts based on Wells Fargo’s alleged breach of an agreement.

The claims grew out of Ms. Mary Mayotte’s mortgage with U.S.

Bank, which used Wells Fargo to service the loan. Ms. Mayotte sought

modification of the loan and alleges that Wells Fargo had agreed to modify

her loan if she withheld three payments. Based on this alleged

2 understanding, Ms. Mayotte withheld three payments. But Wells Fargo

denies agreeing to modify the loan, and U.S. Bank eventually foreclosed.

The foreclosure spurred Ms. Mayotte to sue U.S. Bank and Wells

Fargo, asserting statutory claims (violation of the Colorado Consumer

Protection Act), tort claims (negligence, negligent supervision, and

negligent hiring), and a claim for a declaratory judgment. The district court

granted summary judgment to U.S. Bank and Wells Fargo, relying in part

on the economic-loss rule and Ms. Mayotte’s failure to present evidence of

compensatory damages. 1

2. We engage in de novo review based on the summary-judgment standard that applied in district court.

Because this is a diversity action brought in the District of Colorado,

we apply Colorado law for substantive matters and federal law for the

standard of review. Prager v. Campbell Cty. Mem’l Hosp., 731 F.3d 1046,

1060 (10th Cir. 2013). Under federal law, we conduct de novo review of

the award of summary judgment. Zahourek Sys., Inc. v. Balanced Body

Univ., LLC, 965 F.3d 1141, 1143 (10th Cir. 2020). Summary judgment is

appropriate when “there is no genuine dispute as to any material fact and

the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(a).

1 The district court alternatively relied on other grounds, but we need not address those grounds. 3 3. The economic-loss rule prevents economic and declaratory relief.

Like most states, Colorado has adopted the economic-loss rule. Town

of Alma v. AZCO Const., Inc., 10 P.3d 1256, 1259–64 (Colo. 2000); see

Wiltz v. BayerCropScience, Ltd., 645 F.3d 690, 695 (5th Cir. 2011) (stating

that the economic-loss rule has been adopted in most jurisdictions). The

applicability of the economic-loss rule is an issue of law. See Town of

Alma, 10 P.3d at 1263–64 (“‘The court determines, as a matter of law, the

existence and scope of the duty’. . . . Consistent with this duty analysis, we

now expressly adopt the economic loss rule.” (quoting Taco Bell, Inc. v.

Lannon, 744 P.2d 43, 46 (Colo. 1987)); see also Haynes Trane Serv.

Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962 (10th Cir. 2009)

(“Whether the economic-loss rule operates to bar [the party’s] fraud

counterclaim ‘is an issue of law . . . .’” (quoting Level 3 Commc’ns, LLC v.

Liebert Corp., 535 F.3d 1146, 1162 (10th Cir. 2008))).

Under Colorado law, a plaintiff alleging an economic loss from a

breach of contract ordinarily lacks a cause of action for a tort. Town of

Alma, 10 P.3d at 1264. A tort would exist only if the wrongful action

violated a duty existing independently of the contract. Id.

4 Invoking the economic-loss rule, the district court granted summary

judgment to U.S. Bank and Wells Fargo on the claims for economic and

declaratory relief. 2 We agree with this conclusion because Ms. Mayotte

• has not shown an independent duty and

• has forfeited her new arguments on the claims for a statutory violation and declaratory judgment.

A. No independent duty exists to support the tort claims.

When deciding whether a potential tort duty exists, Colorado courts

generally consider

• the risk involved,

• the foreseeability and likelihood of injury weighed against the social utility of the defendant’s conduct,

• the burden of guarding against injury or harm, and

• the consequences of placing the burden on the defendant.

A.C. Excavating v. Yacht Club II Homeowners Ass’n, Inc., 114 P.3d 862,

868 (Colo. 2005).

But in the context of the economic-loss rule, a defendant can incur

liability for economic losses only if the underlying duty is “independent.”

S K Peightal Engineers, LTD v. Mid Valley Real Estate Sols. V, LLC, 342

P.3d 868, 875 (Colo. 2015). A duty is independent if it

2 The district court also relied on the economic-loss rule to bar recovery for non-economic losses. We address those remedies separately.

5 • lies beyond the scope of contractual duties or

• arises in the context of a “special relationship,” such as an attorney-client, physician-patient, or insurer-insured relationship.

Id.

Ms. Mayotte’s relationship with U.S. Bank was governed by a

contract, but Ms. Mayotte has not asserted a claim for breach of contract.

She instead asserts claims involving torts, violation of a statute, and

declaratory relief.

For the torts, Ms. Mayotte argues that U.S. Bank and Wells Fargo had

duties outside of the contract. We reject this argument.

In district court, Ms. Mayotte did not present an argument or

evidence about the existence of independent duties. Though she alleged

duties of care, she didn’t allege

• the creation of these duties outside of the contract or

• the existence of a special relationship with the defendants. 3

3 Ms. Mayotte did say in a subheading: “Wells Fargo and US Bank Owed Duties Independent of the Contract with Ms. Mayotte, and Therefore this Action Arises in Tort.” Appellant’s App’x, vol. 9, at 2367. But in the body of the brief, Ms. Mayotte did not explain how these duties existed independently of the contract. See Sierra Club, Inc. v. Bostick, 787 F.3d 1043, 1060 n.18 (10th Cir. 2015) (concluding that the petitioners had failed to adequately brief an argument beyond a heading in their opening brief).

6 On appeal, Ms. Mayotte relies on a report from her expert witness

and admissions by a Wells Fargo employee. But the existence of an

independent duty involves a matter of law, not fact. See p. 4, above.

Ms. Mayotte’s expert witness didn’t purport to opine on the banks’

legal duties. In his report, the expert witness simply opined on the facts

relating to what “a reasonably careful and ethical servicer should be able

to do.” Report of James E. McNulty at 3 (Dkt. No. 134-7). 4 This opinion

does bear on the banks’ responsibility to carry out obligations in a

commercially reasonable manner. See Report of James E. McNulty at 3

(Dkt. No. 134-7); Appellant’s App’x at 2347–55. But that duty inheres in

every contract as an implied duty of good faith and fair dealing. Amoco Oil

Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995), as modified on denial of

reh’g (Jan. 16, 1996). This duty does not exist independently of the

contract. Top Rail Ranch Estates, LLC v. Walker, 327 P.3d 321, 329 (Colo.

App. 2014).

Though the expert witness addressed matters bearing on the implied

duty of good faith and fair dealing, he didn’t purport to identify the banks’

legal duties. He couldn’t, for the existence of a legal duty lies within the

sole province of the court. See Black v. Black, 422 P.3d 592, 610 (Colo.

4 In the appendix, Ms. Mayotte did not include the copy of the expert report attached to her summary-judgment motion. The report appears in the appendix only as an attachment to Ms. Mayotte’s response to the defendants’ motion to exclude expert testimony. 7 App. 2018) (stating that an expert witness’s testimony on “the correct legal

standard” would be inadmissible); see also p. 4, above. So even if the

expert witness had purported to opine on the banks’ legal duties, that

opinion could not prevent summary judgment. See Portenier v. United

States, 520 F. App’x 707, 716 (10th Cir. 2013) (unpublished) (concluding

that the plaintiff ’s “marshalling of evidence cannot create . . . a legal duty”

because the existence of a duty involves a pure issue of law). 5

Ms. Mayotte also misstates the alleged “admissions” by Wells Fargo.

On appeal, Ms. Mayotte states that “Wells Fargo admitted that it owed . . .

duties.” Appellant’s Opening Br. at 48. In support, she cites pages 2347–55

of the appendix. These pages contain testimony about Wells Fargo’s

policies. Appellant’s App’x at 2347–55. But the testimony doesn’t address

any duties, much less duties existing beyond the contract.

Ms. Mayotte also argues that she had a special relationship with the

defendants. We disagree. Colorado does not recognize a special

relationship between lenders and borrowers, so Colorado appellate courts

routinely dismiss borrowers’ negligence claims against lenders. See Miller

v. Bank of New York Mellon, 379 P.3d 342, 348 (Colo. App. 2016)

(upholding the dismissal of a negligence claim by borrowers against a

5 Portenier is persuasive but not precedential. See 10th Cir. R. 32.1(A).

8 lender because no special relationship existed); Premier Farm Credit, PCA

v. W-Cattle, LLC, 155 P.3d 504, 523 (Colo. App. 2006) (upholding the

dismissal of borrowers’ negligence claim); Centennial Square, Ltd. v.

Resolution Trust Co., 815 P.2d 1002, 1004 (Colo. App. 1991) (same), cited

by Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1262 (Colo. 2000).

Given the absence of an independent duty, the economic-loss rule

bars Ms. Mayotte’s tort claims for economic damages.

B. Ms. Mayotte forfeited her argument that the economic-loss rule doesn’t apply to the claims for violation of a statute or for a declaratory judgment.

Ms. Mayotte argues on appeal that the economic-loss rule doesn’t

apply to her claims for violation of a state statute or for a declaratory

judgment. But she didn’t make this argument in district court.

There U.S. Bank and Wells Fargo sought summary judgment on all of

the claims, including those for violation of the Colorado Consumer

Protection Act and for a declaratory judgment. But Ms. Mayotte didn’t

argue that these claims would have triggered an exception to the economic-

loss rule. 6 So the district court didn’t have the benefit of the argument that

Ms. Mayotte has made to us.

6 In her reply brief, Ms. Mayotte argues that she preserved her opposition to application of the economic-loss rule on the statutory claim. But in district court, she argued only that the statutory claim was an independent source of liability; she didn’t explain how the statutory claim existed independently of the contract or otherwise address her statutory claim in relation to the economic-loss rule. 9 Despite Ms. Mayotte’s failure to preserve this argument, we could

ordinarily consider it under the plain-error standard. See Richison v. Ernest

Grp., Inc., 634 F.3d 1123, 1131 (10th Cir. 2011). But Ms. Mayotte has not

urged plain error, so we decline to consider this argument. See id.

4. Ms. Mayotte failed to present any evidence of non-economic harm.

Ms. Mayotte argues that even if the economic-loss rule bars recovery

for economic harm, she could still recover for non-economic harm (like

emotional distress). But she failed to present any evidence of non-

economic harm.

In district court, U.S. Bank and Wells Fargo urged summary judgment

based in part on a failure to prove compensatory damages. In support, U.S.

Bank and Wells Fargo

• presented evidence that Ms. Mayotte had obtained a benefit worth $310,000 by living in her house for over ten years without making any payments and

• argued that the damages could not have outweighed the $310,000 benefit.

This argument triggered a burden for Ms. Mayotte to present evidence of

non-economic harm. Fed. R. Civ. P. 56(c)(1)(A), (c)(3).

Ms. Mayotte responded by pointing out that she had alleged

emotional distress. But Ms. Mayotte could not satisfy her evidentiary

burden by relying on the allegations in her complaint. Hansen v. PT Bank

Negara Indonesia (Persero), 706 F.3d 1244, 1247 (10th Cir. 2013). For 10 those allegations, she needed to present evidence. See, e.g., Tull v.

Gundersons, Inc., 709 P.2d 940, 943–45 (Colo. 1985).

On appeal, Ms. Mayotte argues that (1) the district court failed to

consider various factors and (2) she had sought summary judgment only on

liability. Both arguments are beside the point.

The district court properly relied on the evidence in the summary-

judgment record, and Ms. Mayotte didn’t present any evidence of non-

economic harm. Despite the failure to present evidence of damages, she

argues here that the district court should have considered various other

factors, such as the value of the house at the time of the foreclosure, her

payments before the foreclosure, and her emotional distress. But when she

responded to the summary-judgment motion, she didn’t identify these

factors or present any supporting evidence.

Ms. Mayotte also argues that she sought summary judgment only on

liability. But U.S. Bank and Wells Fargo sought summary judgment based

in part on Ms. Mayotte’s failure to prove compensatory damages. The

defendants’ argument for summary judgment triggered Ms. Mayotte’s

burden to respond, and the limited scope of her own summary-judgment

motions was immaterial.

5. Conclusion

In our view, the district court properly granted summary judgment to

U.S. Bank and Wells Fargo. They invoked the economic-loss rule, and Ms.

11 Mayotte failed to present any basis for recognition of a legal duty outside

of the contract. So Ms. Mayotte cannot recover damages for economic

losses. Nor can she recover other damages. U.S. Bank and Wells Fargo

denied any proof of non-economic damage, and Ms. Mayotte failed to

present evidence of such damage.

Given the economic-loss rule and failure to present evidence of non-

economic damage, we affirm the award of summary judgment to U.S. Bank

and Wells Fargo.